CUNA testifies at hearing to examine 'regulatory assault' on small FIs

September 16, 2014

WASHINGTON (9/17/14)--Members of the Senate Banking Committee expressed their concerns with over-regulation and its effects on small financial institutions such as credit unions during a hearing Tuesday.

The hearing, which featured testimony from the National Credit Union Administration and the Credit Union National Association, examined ways Congress could reduce the regulatory burden in order to insure better access to financial services.

Dennis Pierce, CUNA board chair, greets Larry Fazio, director of the NCUA's Office of Examination and Insurance, before a Senate Banking Committee hearing Tuesday. Both men testified at the hearing on the impact of regulatory burden on credit unions. (CUNA Photo)

Dennis Pierce, chair of the CUNA board and CEO of CommunityAmerica CU, Lenexa, Kan., with $1.9 billion in assets, said that unless reducing the regulatory burden of credit unions becomes a top legislative priority, small credit unions will continue to face troubles.

"Congress and regulators ask a lot of small, not-for-profit, financial institutions when they tell them to comply with the same rules as JPMorgan, Bank of America and Citibank, because the cost of compliance is proportionately higher for smaller-sized credit unions than these behemoth institutions," he said.

"Failure to take even small steps in the direction of reducing credit unions' regulatory burden will result in the continued trend of consolidation in the credit union sector and fewer credit unions serving America's consumers and small businesses."

Sen. Mike Crapo (R-Idaho) echoed these points, noting that since 1990, more than half of all credit unions and more than 3,000 small banks have closed, consolidated or merged.

"Small financial institutions are disappearing from the American landscape at an alarming rate, due to an ever increasing regulatory burden," he said. "These small entities can only withstand the regulatory assault for so long before considering a merger or consolidation."

In his testimony, Larry Fazio, director of the NCUA's Office of Examination and Insurance, cited NCUA data that said from 1990 to 2013, credit union membership grew by 66.3%, while the number of credit unions fell 49.7%.

Sen. Jerry Moran (R-Kan.), said that while regulators were also responsible for reducing regulatory burdens, Congress was at fault as well for failing to get certain bills "across the finish line." He noted the Privacy Modernization Act, which has the expressed support of 99 senators but has yet to be passed by the Senate.

Sen. Tim Johnson (D-S.D.), chair of the committee, asked Fazio for an update on the agency's risk-based capital (RBC) proposal. Johnson's first question of the hearing was on the NCUA's RBC rule. He asked when the rule will be finalized and whether or not it will be reissued for comment.

NCUA's witness answered that it is a top priority for the NCUA, and they are working around the clock on the rule. He indicated that he doesn't have an exact date for the final rule or answer if it will be reissued for comment.

Fazio said the agency is continuing to work at the staff level to consult with industry stakeholders on several technical aspects of the proposed rule.

"Once we complete that process we'll need to work with the NCUA board to achieve consensus on the direction we want to take for the final rule. Once we do that, we'll be in a better position to speak on the timing and the issue of another comment period," he said. "I can say it's the agency's top regulatory priority, and staff is working around the clock on this issue."

Pierce was critical of the risk-based capital proposal, noting the numerous objections raised by members of Congress, CUNA and other stakeholders.

"A comprehensive risk-based capital proposal for credit unions would be great, but this isn't the one that does it. It leaves out key elements, and it doesn't properly evaluate the risk-based nature of capital," he said. "It also goes beyond what Congress has given NCUA the authority to do with RBC and it doesn't include access to supplemental capital, which would be great for credit unions."

Pierce also expressed CUNA's support for the following bills in his written testimony.

The Privacy Notice Modernization Act (H.R. 749/S. 635) would require credit unions to send out privacy policy notifications only when the policy has changed, rather than the currently required annual basis. Since 2001, credit unions have sent an average of 87 million notices per year. Pierce said the bill "is an example of legislation that both reduces regulatory burden and improves consumer protection;"

The Capital Access for Small Community Financial Institutions Act (H.R. 3584/S. 1806), which would correct a drafting oversight in the Federal Home Loan Bank Act which has resulted in a small number of privately insured credit unions being ineligible to join a Federal Home Loan Bank. "If the legislation had used a broader term, such as 'state credit union' or 'state-chartered credit union,' terms that are clearly defined in the Federal Credit Union Act, this would not be an issue," Pierce said.

Use the resource links below to access the full testimony from CUNA and the NCUA.

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